Social risk: An underexposed source of disruption

Social risk: An underexposed source of disruption

By Bryan Bloom and Jim Sisco

Social risk is real.  It impacts our lives daily but often goes unnoticed. It is often attributed to globalisation, climate change, pandemics, migration, and social media. However, these phenomena only increase its likelihood. A guest post by ENODO Global, Inc.

Social risk is found within a population’s underlying tensions and its struggle to acquire basic needs. When grievances and needs are not addressed, social risk increases and seemingly “insignificant” events can trigger protest, strikes, litigation, looting, work stoppages, and violence. Social risk is amplified by communications technologies that enable angry citizens, communities, activist groups, political movements, and terrorist groups to take advantage of identity, fear, and anger to achieve their agendas.

Migration, climate change, and pandemics increase social tensions and competition for resources creating fertile environments for trigger events. For example, refugee resettlement has increased the interaction between populations with starkly different cultures, religions, and world views. Refugees seeking a new life and economic opportunity often face resentment, fear, and isolation. Alienated refugees form communities, like the Muslim ghetto in Muehlenbeck that become incubators for extremism and violence. Changes in precipitation patterns have brought severe droughts, stronger hurricanes, and rising sea levels that impact livelihoods in diverse ways; the 2006-2010 drought in Syria initiated a series of events that ultimately led to a civil war. The Zika and Ebola outbreaks across Central and South America and western Africa have weakened local economies that are heavily dependent on tourism and social interaction.

Activist groups, political movements, and terrorist organisations take advantage of social tensions to advance their agendas. They exploit underlying grievances and target identities to fuel social unrest. Social media provides these groups new weapons to rally people around ideas, images, memes, and narratives in real time. ISIS’ index finger and #blacklivesmatter are examples of how an image and hashtag represent profound authority. Simultaneously, they connect on a personal level through shared experiences and identities. By concentrating on the causes of social unrest, movements and organisations command the power to shape people’s beliefs and the environments they seek to control.

Syria: An extreme example of social risk escalating into civil war

The Syrian Civil War serves as an extreme example of social risk. From 2006-2010, a devastating drought forced large-scale migration to Syria’s major cities. Urbanisation increased competition for resources and demand for government services. When demands were not satisfied, social tensions escalated. The trigger event occurred when security forces apprehended several teenagers for spray-painting anti-Assad graffiti. The teenagers were beaten and tortured, with one castrated and killed. This single event enabled activist groups to craft a narrative—the Assad regime torturing “our children” that tapped into the “family” identity. This powerful narrative coalesced diverse tribal, religious, and ethnic groups across the entire country. After six months of peaceful nation-wide protests, Assad’s security forces violently cracked down, and the civil war began.

Timeline of events in Syria

Timeline of events in Syria

Social risk integral to the Arab Spring

The Arab Spring is another example of how a seemingly “insignificant” event led to political upheaval and regional instability. In Tunisia, a fruit vendor named Mohammed Bouazizi faced daily corruption from the police at the market. When his uncle complained to the police chief, the police not only stole his fruit and scale, but also slapped him in the face in front of tens of witnesses. When Bouazizi tried to complain at city hall, he was stopped by a clerk. Humiliated by the police and without recourse through official channels, he set himself on fire in front of the municipal building. This event sparked protests around the country. Tunisians experiencing social tension (e.g. daily corruption, undignified treatment, high unemployment) coalesced around a narrative of a better way of life. The government was eventually overthrown and the first democratic elections were held.

Syria 2

Timeline of events in Tunisia

Syria and Tunisia epitomise how people can quickly unite around a common belief to challenge the status quo. They deliver glaring illustrations of social risk’s growing reach and magnitude across a broad spectrum that includes complex geopolitical episodes to costly black swan events. The results are seen daily across diverse social structures, cultures, and geographies. Recent examples include the ouster of Burkina Faso’s President, the takeover of parliament by Venezuela’s opposition, the resignation of Iceland’s Prime Minister, and the potential impeachment of Brazil’s President.

Brazilian President Dilma Rousseff (Antonio Cruz/Agência Brasil)

Brazilian President Dilma Rousseff (Antonio Cruz/Agência Brasil)

Governments and NGOs continue to focus resources and efforts on trigger events and the manifestations of social risk, not the root causes. This approach has limited upside, especially when stakeholders design programs to accomplish their objectives rather than satisfying the needs of the people. For example, the Bill & Melinda Gates Foundation’s goal to eradicate malaria is a worthy cause and a great media sound bite. However, even if the disease was eradicated, communities may still lack basic needs. Moreover, western development programs focused on female empowerment, LGBT rights, democracy, and rule of law lack legitimacy, and counter social norms and heighten social tensions in many cultures, while not fulfilling basic needs.

Acute need to understand social risk better

Governments and private sector firms need to understand social risk and must recognise its early manifestations to safeguard their investments. As competition for diminishing resources increases, unaddressed basic needs (e.g. water, food, and electricity) heighten social tensions. Resentment builds when governments fail to provide services and people have little recourse except to target resource-rich companies that operate in their communities.

As private sector companies expand their operations internationally, they often secure assurances from national governments, rely on top-down engagement strategies, and in many cases outsource their corporate social responsibility (CSR) and shared value initiatives to NGOs. These initiatives tend to focus on building schools and health clinics, digging wells, or introducing advanced technologies. They attempt to reinforce a positive western brand, but fail to deliver sustainable, enduring projects that address basic needs.

Investors that rely on geopolitical analysis and business intelligence from regional experts need better insights to forecast social risk and its impact on investments and operations. Often inadvertently, firms’ actions trigger social risk, which results in extreme downside losses. Significant delays of Southern Copper’s $1.4bn Tia Maria Project in Peru, AngloGold Ashanti’s ongoing security challenges in Ghana, and Goldman Sachs $200 million coal operation loss in Colombia are a few examples. Ironically, companies can mitigate the underlying sources of social risk, have a greater social impact, reduce CSR costs, and safeguard their operations by implementing inexpensive, small-scale development projects that address basic needs and grievances. This is especially true in frontier markets and underdeveloped regions where competition for basic needs and social tensions are more prevalent.

Governments, NGOs, and companies can avoid the manifestations and prevent the impacts of social risk by understanding its origins.  The solution is a population-centric approach that adds an additional layer of risk analysis. The approach pinpoints identity, which influences behaviour, answers “what” basic needs and grievances are not being addressed, and “why” populations take action. This enables stakeholders to pinpoint, forecast, and even mitigate the drivers of social unrest across varying geopolitical, ethnic, and religious conditions. When organisations fulfil basic needs, the community proactively becomes invested in the success of the stakeholder, which deters activist groups from securing a foothold in the community. Ultimately, this increased intelligence benefits all parties through reduced risks, sustainable local growth, and avoidance of costly social unrest.

Bryan Bloom is the Chief Financial Officer of ENODO Global Inc. He leads ENODO’s finance practice to pinpoint, forecast, and mitigate social risk for financial firms to take advantage of mis-priced investments. He earned a B.A. from Colgate University with a double major in Economics and Political Science and an MBA from The Wharton School with concentrations in Finance and Management.
James R. Sisco is the founder and President of ENODO Global, Inc. a risk advisory firm that conducts population-centric analysis to solve complex social problems in dynamic cultural environments. Jim draws upon a distinguished 23-year military career in Marine Corps Special Forces and Naval Intelligence to lead ENODO Global. 
Categories: International, Security

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Guest Post

This article was published as part of the GRI Guest Post Series. GRI guest posts come from leading experts in business, government, and academia. The series strives to bring a diverse range of perspectives on the critical issues of our time. The views expressed in this article are solely that of the author and do not necessarily represent the views or opinions of GRI.